Non-resident withholding tax (NRWT) is a tax that’s deducted from the interest earned by non-residents in New Zealand. NRWT is a part of New Zealand’s tax collection system and is used to address the practical issue of collecting certain types of overseas income.
Another related payment to be aware of is non-resident passive income (NRPI). These kinds of payments, as stated in the subpart RF of the Income Tax Act 2007, instruct that New Zealand-based payers must withhold tax amounts when they make payments of interest, dividends, and royalties to non-residents (i.e. foreign investors).
If you pay non-resident passive income (INRP), then you are liable for non-resident withholding tax (NRWT). However, you must register as a payer and deduct non-resident withholding tax from the related payments you make.
Tax rules of non-resident passive income can be challenging to understand. Below, we elaborate on withholding tax rules concerned with dividend, interest, and royalty, for your convenience:
The standard rate of NRWT in New Zealand is 30%. If it is the fully imputed dividend, then this rate decreases to 15%. In some cases, NRWT rates can be further reduced to 0%.
The non-resident withholding tax rate for Interest is generally paid at 15%. In most cases, this rate is overridden by a Double Tax Agreement (DTA) to be paid at 10% of the gross amount of income instead. For an approved issuer, the non-resident withholding tax interest rate is reduced to 0%. Instead of deducting NRWT, they pay an approved issuer levy (AIL) on securities. This levy is calculated at a rate of 2% of the value of the registered security.
Royalties are generally subject to NRWT if it is paid by a resident company to a non-resident company. For payments made from cultural royalty, NRWT is made at 15%, as a final tax. As for industrial or commercial royalties, the final tax liability is the greater of the withholding tax and the full income tax liability.
If the recipient is a resident of a tax treaty county, the rate is generally only 10% under the applicable DTA.
Because non-resident withholding tax is part of New Zealand’s tax collection system, it is very important for businesses to know and understand the areas involved with it, especially if a business has a withholding tax obligation.
In some cases, NRWT rates can be very high, maxing at 30%. If you miss a payment, or if a payment is made late, you will be charged a late payment penalty. You will also need to pay interest if you don’t make the payment when tax payments are due.
Furthermore, it is technically complex to apply rules of NRWT in practice and highly dependent on the facts and circumstances of the particular scenario. Because of this, it can be very challenging to apply NRWT correctly, and therefore, you need to pay extra attention when doing so.
Dealing with non-resident withholding tax in New Zealand can be difficult, to say the least. Hiring a financial accountant to help you through the process can lessen the stress and make NRWT easier to complete. As a professional accounting company specialising in New Zealand tax compliance, we can help you. We can help you file your income tax and help you through all NRWT related processes, including the following:
- Registering as an NRWT payer
- Correcting or amending an NRWT deduction
- No longer paying NRWT
- Facing an audit and investigating from IRD
- Approved Issuer Levy (AIL) issues
- Special cases, for example, related party transactions, emigrating companies, joint accounts. Etc.
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